Summary
Courts and commentators have long been concerned with holdout problems in the law. This article focuses on a holdout problem in class action litigation known as objector "blackmail." Objector blackmail occurs when individual class members delay the final resolution of class action settlements by filing meritless appeals in the hope of inducing class counsel to pay them a side settlement to drop their appeals. This article both brings to light quick-pay provisions and evaluates whether they are a better solution to the blackmail problem than those proposed by courts and commentators. Although quick-pay provisions can mitigate much of the blackmail threat without the collateral damage caused by other proposed solutions, the provisions have several serious limitations. Instead, the author proposes a new solution to the blackmail problem: an inalienability rule that prohibits objectors from settling appeals unless their settlements include a modification of the underlying class action settlement agreements.
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Extract
The End of Objector Blackmail?
I. INTRODUCTION
For many years, courts and commentators have been concerned about a phenomenon in class action litigation referred to as objector "blackmail."1 The term "blackmail" is used figuratively rather than literally; so-called objector "blackmail" is simply a specific application of the general concern with legal regimes that permit one or more individuals to "hold out" and disrupt collective action.2 The holdout problem in class action litigation stems from the following series of events: When a class action is settled, class members who do not like the proposed settlement are permitted to file objections with the federal district court that must approve it. If the district court nonetheless approves the settlement, the class members who filed objections have the right to appeal the district court's approval. If objectors appeal the settlement, however, the final resolution of the settlement will be delayed during the time it takes the court of appeals to decide the appeal, which can be years. Not only does the appeal delay final resolution of the settlement, but, more importantly for the blackmail problem, it also delays the point at which class counsel can receive their fee awards, which are contingent upon the settlement. As class counsel are eager to receive these fees, they are willing to pay objectors out of their own pockets to drop the appeals. This, it is thought, has led class members to file wholly frivolous objections and appeals for no other reason than to induce these side payments from class counsel.3 These appeals are what courts and commentators refer to as objector "blackmail."4Class members have to be fairly savvy to take advantage of this scheme. But the large stakes involved in big class action settlements have drawn just those savvy class members. Like class actions themselves, objector blackmail is generally lawyer driven. Some lawyers are said to be "professional objectors" who travel from settlement to settlement seeking class members on behalf of whom they can object. In other instances, objections are filed in furtherance of rivalries between lawyers seeking to control class action litigation; lawyers representing class members in competing actions may object in the settling actions in order to share in the fee awards.5Courts and commentators believe that objector blackmail is a serious problem. Objector blackmail is often seen as something of a "tax" that class action lawyers must pay in order to settle class action litigation,6 and it has been decried in numerous court opinions7 and scholarly commentaries.8 As one commentator has put it, class action objectors are "the least popular parties in the history of civil procedure."9 The blackmail concern has led courts and commentators to propose a variety of measures designed to mitigate the threat of objector blackmail. Perhaps the most draconian among these measures is the recent practice by some district courts to require objectors to post bonds under Federal Rule of Appellate Procedure 7 for hundreds of thousands or even millions of dollars in order to appeal class action settlements-something few objectors, no matter what their motivations, are in a position to do.10In this Article, I bring to light a current practice among class action lawyers that neutralizes much of the blackmail threat, a practice known as "quick pay." As far as I am aware, this practice has never been acknowledged by any court nor any commentator. The practice works as follows: With the consent of the defendants, class counsel insert provisions into class action settlements that permit counsel to receive whatever fees district courts award them as soon as those courts approve the settlements, regardless of whether the settleme...See the full content of this document
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